USD/INR flat lines ahead of India CPI inflation data

VaselineAugust 12, 2024

0 4 minutes read

USD/INR flat lines ahead of India CPI inflation data

The Indian rupee is trading sideways in Asian trading hours on Monday.
Elevated geopolitical risks in the Middle East could boost the pair, while a possible RBI intervention could limit the upside.
India’s CPI and industrial production data will be the most important months.

The Indian Rupee (INR) is trading flat on Monday amid a strengthening greenback. Traders are becoming cautious amid geopolitical risks. The US is bolstering its capabilities in the Middle East by sending an additional guided-missile submarine to the region “in light of rising regional tensions,” according to ABC News. This could boost a safe-haven currency like the US dollar (USD) in However, in the short term, the likely intervention of the Reserve Bank of India (RBI) could support the local currency and limit significant upside for the pair.

Looking ahead, traders will monitor the release of India’s Consumer Price Index (CPI) and Industrial Production. On the US file, the Producer Price Index (PPI), Consumer Price Index (CPI) and retail sales will be released later this week. Weaker inflation data could strengthen expectations that the Federal Reserve (Fed) will start cutting interest rates soon, which could push interest rates lower.

Daily Digest Market Movers: Indian rupee holds steady ahead of Indian CPI report

Amit Somani, senior fixed income fund manager at Tata Asset Management, noted that the balance of risks to the Indian rupee remains bearish, adding that he expects the currency to move in the range of 83.80-84.20 for the week.
“The Reserve Bank of India (RBI) has been very watchful of the rupee’s movement and has intervened in the spot market to ensure it remains close to 84,” said Jigar Trivedi, senior analyst at Reliance Securities.
Indian CPI is expected to show an increase of 3.65% year-on-year in July, compared to 5.08% in the previous reading.
The Israeli intelligence community believed that Iran had decided to attack Israel directly and may do so within days, Axios reporter Barak Ravid said Sunday, citing two sources.
Fed Governor Michelle Bowman said on Sunday that she saw progress in reducing inflation in previous months, but inflation was still uncomfortably above the Fed’s 2% target, pointing out that the Fed may not be ready to cut rates at its next meeting in September , per Reuters.
The CME FedWatch tool showed the possibility of a 50 basis point (bps) interest rate cut by the Fed at the September meeting to 52.5%, down from 57.5% a day ago.

Technical Analysis: USD/INR’s positive position remains unchanged

The Indian Rupee trades fixed on the day. However, the USD/INR pair is showing significant upward movement on the daily chart, with the price holding above the 100-day exponential moving average (EMA) and the two-month-old uptrend line. Bullish momentum is supported by the 14-day Relative Strength Index (RSI), which is near 65.50, suggesting a continuation of the uptrend.

A decisive positive breakout above the psychological barrier of 84.00 could pave the way to the all-time high of 84.24. If the rise continues, the pair can take to 84.50.

On the downside, a bearish turn could hold USD/INR back to the uptrend line near 82.82. Sustained trading below this level will see a decline to the 100-day EMA at 83.52.

Price in US dollars this week

The table below shows the percentage change in the US dollar (USD) against the major listed currencies this week. The US dollar was the weakest against the Australian dollar.

	USD	EURO	GBP	CAD	AUD	JPY	NZD	CHF
USD		-0.05%	-0.09%	-0.02%	-0.23%	-0.09%	-0.23%	0.02%
EURO	0.05%		-0.03%	0.03%	-0.16%	-0.03%	-0.17%	0.07%
GBP	0.08%	0.03%		0.06%	-0.14%	0.00%	-0.14%	0.10%
CAD	0.02%	-0.03%	-0.06%		-0.19%	-0.07%	-0.22%	0.04%
AUD	0.23%	0.16%	0.13%	0.20%		0.13%	0.00%	0.25%
JPY	0.12%	0.05%	0.01%	0.06%	-0.13%		-0.13%	0.12%
NZD	0.22%	0.17%	0.14%	0.20%	0.01%	0.12%		0.24%
CHF	-0.02%	-0.08%	-0.11%	-0.04%	-0.24%	-0.11%	-0.25%

The heatmap shows the percentage changes of major currencies against each other. The base currency is chosen from the left column, while the quoted currency is chosen from the top row. For example, if you choose Euro in the left column and move along the horizontal line to Japanese Yen, the percentage change shown in the box will be EUR (base)/JPY (quote).

Frequently Asked Questions about the Indian Rupee

The Indian Rupee (INR) is one of the most sensitive currencies to external factors. The price of crude oil (the country is heavily dependent on imported oil), the value of the US dollar – most trade is done in USD – and the level of foreign investment are all influential. Direct intervention of the Reserve Bank of India (RBI) in the foreign exchange markets to keep the exchange rate stable, as well as the level of interest rates set by the RBI, are other major influencing factors on the rupee.

The Reserve Bank of India (RBI) actively intervenes in the foreign exchange markets to maintain a stable exchange rate to help facilitate trade. In addition, the RBI is trying to maintain the inflation rate at the target of 4% by adjusting interest rates. Higher interest rates usually strengthen the rupee. This is due to the role of “carry trade” where investors borrow in countries with lower interest rates so that they place their money in countries that offer relatively higher interest rates and profit from the difference.

Macroeconomic factors that influence the value of the rupee include inflation, interest rates, the rate of economic growth (GDP), trade balance and foreign investment flows. A higher growth rate can lead to more investment abroad, increasing demand for the rupee. A less negative trade balance will ultimately lead to a stronger rupee. Higher interest rates, especially real rates (interest rates minus inflation) are also positive for the rupee. A risk-on environment may lead to higher foreign direct and indirect investment (FDI and FII) inflows, which also benefits the rupee.

Higher inflation, especially if it is comparatively higher than India’s, is generally negative for the currency as it reflects devaluation through oversupply. Inflation also increases the cost of exports, resulting in more rupees being sold to buy foreign imports, which is negative for the rupee. At the same time, higher inflation usually leads to the Reserve Bank of India (RBI) raising interest rates, and this can be positive for the rupee due to increased demand from international investors. The opposite effect is true for lower inflation.

VaselineAugust 12, 2024

0 4 minutes read